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Property market gasping for air because of overly high interest rates   2011-01-28 - Dau tu chung khoan

With overly high lending interest rates at 18-20 percent per annum, real estate developers have turned their back on the market.

 

 

High interest rates mean high pressure

 

 

 

 

At a recent meeting with clients, Mathew Powell, Director of the Hanoi branch of Savills Vietnam presented a noteworthy figure.

 

Only 10 percent of clients who bought apartments at the projects, for which Savills acts as the sale representative, mortgaged the apartments to borrow money from banks to make payments on the apartments.

 

Overly high interest rates are to blame.

 

 

 

Richard Leech, Managing Director of CBRE Vietnam, a real estate service provider, also said overly high interest rates have caused the flow of investment capital into the real estate sector to decrease.

 

 

 

At present, commercial banks including Vietcombank, Vietinbank, Hong Kong and Shanghai Banking Corporation, Asia Commercial Bank all offer installment plans for  individual clients to purchase houses. The banks commit to providing  loans worth 70 percent of the real estate assets to clients for 10-15 years. However, very few clients have been interested in the attractive invitations.

 

 

 

Investors remain hesitant

 

 

 

Hoang Anh Hung, an individual real estate investor, said that in the past, it was very easy to earn profit with real estate investments, because it was easy to borrow money from banks. Investors just needed to pay 10-20 percent of the apartments’ value, then wait 2-3 months and resell the apartments for profit. The profit, according to Hung, was very big, at 40-50 percent. However, at this moment, liquidity on the market is very low and lending interest rates are overly high.  Therefore, no investor would dare to use borrowed money to invest in real estate.

 

 

 

Consequently most of the clients who purchased apartments with borrowed money last time were those who really had the demand for accommodations, not investors.  Clients could pay 50-70 percent of the values of the property they planned to buy, and they only borrowed money when they could not seek capital from any other sources.

 

 

 

Dr Dinh The Hien, a well known financial expert, said that since houses are now too expensive, buyers will find it difficult to pay interests let alone principals. Therefore, people would not be interested in purchasing houses on installments until they have stable high income.

 

 

 

Financial experts believe that if  deposit interest rates are just 6-7 percent, and lending interest rates are 8-10 percent, then it would be feasible to boost apartment sales. Meanwhile, house buyers cannot afford such high interest rates.

 

 

 

A representative from Colliers International, a real estate service provider, also said that one of the driving forces of the property market is the finance sourced from banks. However, with the current interest rate of 18 percent per annum, clients will have to think carefully before deciding to borrow money to buy houses.

 

 

 

Therefore, the real estate market in 2011 is forecasted to keep quiet. That explains why the real estate prices on the secondary market remain sky high and there are very few transactions.

 

 

 

According to the State Bank of Vietnam’s website, by October 31, 2010, the total outstanding loans given to fund real estate investments reached 224,843 billion dong, increasing by 22 percent from December 31, 2009. Meanwhile, the credit growth rate of the whole banking system during the same period  was 23.87 percent.


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